Nietzsche and the German Historical School of Economics

Forthcoming in Backhaus, Jürgen and Wolfgang Drechsler (editors): Friedrich Nietzsche1844-2000: Economy and Society, Series The European Heritage in Economics and the Social Sciences, Boston, Kluwer.

1. Preface: Nietzsche and the late 19th Century Economic Agenda. 3

2. The Kathedersozialist Program 5

3. Nietzsche and Renaissance Individualism. 6

4. Nietzsche and the German Economic Tradition. 8

5. Nietzsche: Social Justice and Welfare. 10

6. Nietzsche: Entrepreneurship, Gradualism and Uniqueness. 12

7. Nietzsche in the Middle: Kathedersozialismus and the True Third Way. 14

8. Conclusion and Notes on Further Research. 16

Bibliography 18

1. Preface: Nietzsche and the late 19th Century Economic Agenda.

From the viewpoint of modern mainstream economics, Nietzsche would hardly be considered as having made any contributions, directly or indirectly, to the economics profession. However, seen in the light of the German, and indeed Continental, tradition in economics – what we have labelled The Other Canon,1 core parts of Nietzsche’s writing have immediate relevance to economics. Today’s standard theory is in effect a continuation of what some 19th Century economists suggested calling catallectics, ‘the science of exchanges’, rather than of production. In contrast to this mainstream body of barter-focused economic theory, the German tradition since the Renaissance has emphasized production, and particularly the role of what Nietzsche fittingly calls Geist- und Willens-Kapital (Nietzsche 2000:4722) – Man’s wit and will – as a factor of production. Within a theory where man’s wit and will – new knowledge, innovations and entrepreneurship – are considered a factor of production, Nietzsche has important things to say about economics. Indeed, as is argued in another paper in this volume (‘Creative Destruction in Economics: Nietzsche, Sombart, Schumpeter’), Joseph Schumpeter and the growing paradigm of evolutionary economics may be said to have their immediate roots in Nietzsche’s thoughts and in the Zeitgeist so much influenced by his work.

One important dividing line in 19th Century economics was the origin of the division of labour. This was in effect the tip of the iceberg of a profound philosophical debate as to the very nature of human beings (Reinert & Daastøl 1997). Adam Smith emphasised barter as the origin of wealth, highlighting Man’s ability to barter as a main difference between Men and dogs (Smith 1976: Book 1 p. 17). This emphasis on barter rather than production as being the core of the economic activities of Mankind was the object of constant rebuttal from German and US economists all through the 19th Century. In the German-American tradition, the division of labor was the necessary consequence of the scale and diversity of human innovations and inventiveness, not the other way around. In the United States, the work of John Rae (1834) may serve as an early example, whereas in the German language Carl Menger, the father of the Austrian School of Economics, in fact uses a whole section of his Grundsätze to refute Adam Smith on this point (Menger 1871/1923 : 26-29).2 This is the ‘anti-English/anti-barter’ stance that is typical of Other Canon economics, to which we shall claim that Nietzsche has a strong affiliation. In this production-based tradition, economics is strongly tied to the science of statecraft, of the management of the state in order to maximise the welfare of a nation. We shall also point to some of Nietzsche’s many references to the importance of economic institutions, and to similarities between the approaches of Friedrich Nietzsche and Thorstein Veblen, the founder of the American Institutional School of Economics.

While scholars previously have made judgments as to Nietzsche’s political position on the right-left axis (e.g. Kashyap 1970), we will abandon this established political mould in favour of a lost, but historically significant, alternative tradition, The Other Canon. At the time of Nietzsche’s writings this tradition was represented by a group of economists of the German Historical School of economics who came to be called Kathedersozialisten, Socialists of the Professorial Chair, a term coined by H. B. Oppenheim (Ingram 1967:206). The economists who were interested in social reform, Schumpeter says, were ‘with singular infelicity dubbed socialistsof the chair’ (Schumpeter 1954:758). For the sake of simplicity we shall still use the term Kathedersozialisten to represent a diverse group of social reformers and statecrafters unified in the Verein für Socialpolitik. There personalities involved in these three institutions – Verein für Socialpolitik, Kathedersozialisten and the German Historical School – overlap to a large degree, in all cases the non-monolithic nature of these groupings facilitates a loose use of the terms.

In this paper, we shall look at Nietzsche’s work, in particular Human, All too Human, written in Sorrento in 1876-77, as it relates to the economics of the great question of the time: The Social Question (Die Soziale Frage). The foundation of the Verein für Socialpolitik (literally ‘The Association for Social Policy’) in October 1872 had established the so-called Kathedersozialist program as a genuine Third Way between economic liberalism, where the market is seen as producing automatic harmony, and communism. We shall argue that in this ideological fight, which was to be prolonged until the fall of the Berlin Wall in 1989, Nietzsche comes out as a supporter of the Third Way of the Verein für Socialpolitik, of Other Canon economics.

The debate on the Social Question was a key issue not only in Germany, but all over Europe. On the Continent, the issue was central to the economics profession, whereas in England, the ‘social reformers’ were and are not considered economists in the strict sense.3 Since what is presently taught as the history of economic thought basically covers the family tree of neo-classical economics plus Marx, this very important debate tends to get a marginal coverage.

1848 marks the political repercussions of the Social Questions, with revolutions in all major European countries except England and Russia, and the same year marks the birth of the German Historical School with the work of Bruno Hildebrand. In 1872, with the foundation of the Verein für Sozialpolitik under the leadership of Gustav Schmoller, the systematic work starts in order to create a solution to the Social Question. Barely a year earlier, Bismarck had forged the German state, and it was the joint efforts of Bismarck and the Kathedersozialisten – the political arm of the German Historical School of Economics – that built the welfare state as a viable alternative to liberalism and communism. By 1873 this debate and the agenda of the Kathedersozialisten had reached Italy, where an intense debate continued until 18764, the same year Nietzsche began working on Menschliches, Allzumenschliches in Sorrento. The fight to solve la Questione Sociale was intense in Italy up until World War I (Loria 1915 & 1920).

As Nietzsche wrote in Sorrento, it was against a backdrop, in Italy and internationally, of intense academic and political debate on liberalism, communism, and the Third Way attempted by the Kathedersozialisten, or i socialisti della cattedra as they were called in Italy. We therefore feel that it is appropriate to evaluate Menschliches, Allzumenschliches in the light of this debate. It is not at all clear that Nietzsche followed the academic debate in Italy on the pros and cons of the ‘new’ German theory which took place while he wrote Menschliches, Allzumenschliches in Sorrento. Nietzsche was not a linguist, but reports in his letters already in 1861 that he is studying Italian and reading Dante in the original language.5

Any inquiry into the possible political connotations of Nietzsche’s philosophy must be accompanied by a certain restraint. His writings are notoriously confusing, and the sheer complexity of his vision leaves, as Conway has pointed out, his readers with an incredible freedom in reinterpretation:

Nietzsche’s strategy of indirection has backfired egregiously and often. Rather than discourage unworthy readers from attempting to divine his Promethean wisdom, his rhetorical gyrations have in fact issued a blanket invitation to cranks and scholars alike. Encountering no insurmountable textual obstacles to their own interpretations of his elusive teachings, Nietzsche’s readers regularly conscript him as the philosophical progenitor of their respective political schemes (Conway 1997:119-120).

Indeed we find that anarchists, socialists, feminists, Nazis, and anti-clericalists of all sorts separately have found chimerical kinship in some aspect of Nietzsche’s writings (Magnus 1996:125-138). It is thus in full awareness of the multiple pitfalls left us by his literary vicissitude that we make our case. Our focus will be on Nietzsche’s view of the state, as it is expressed in the chapter “A Glance at the State”,in his 1878 Human all too Human. Most readers with even a passing familiarity with Nietzsche’s work will automatically recall the oft-quoted aphorism from Thus Spake Zarathustra, where Nietzsche calls the State “the coldest of the cold monsters”, but his quote is far too often taken out of context. What should be seen as an attempt to liberate his contemporaries from the shackles of civic submission, to shock them from their decadent lifestyles, has become a general attack on inappropriate social constructs regardless of nature.